Prospective U.S. Home buyers who may have been persuaded by skeptical journalists that populate the mainstream financial press of the sustainability of the rise in house prices will by now be increasingly finding themselves in an panicky state as US house prices have literally started to soar during the past few months, as illustrated by the Case Shiller house prices index for the most recent month of May showing a jump of 7% over just the past 6 months.

The graph for long-term US housing prices shows that prices are now rising at an annualised rate of over 12% which now puts the momentum for house prices firmly into strong bull market territory, in fact a goldilocks state that in my opinion could be sustained for many years, never mind months (i.e. a rate of about 12% per annum is sustainable). However any further increase in momentum and then that would result in a the housing market overheating thus warranting a correction.

As also illustrated by the graph, the US housing market has some way to go to reach the point of a bubble peak, which means home buyers should take all of the commentary of this bull market not being sustainable, and for an imminent end, from clueless academic economists, financial commentary salesmen, and worse journalists who think they are clueless economists, with a house size pinch of salt, for they never saw this bull market coming in the first place and will likely only turn bullish just before the trend ends, as was the case towards the end of the last US housing bubble market.

As an example, here is what Peter Schiff wrote for Forbes over four months ago -

Of course the real risks in housing center on the next leg down, in what I believe will be a continuation of the real estate crash. We can’t afford to artificially support the market indefinitely. When significantly higher interest rates eventually arrive, the fragile market will again be impacted. We saw that movie about five years ago. Do we really want to see it again?

U.S. House Prices Forecast

My in-depth analysis and concluding trend forecast of January (12 Jan 2013 - U.S. Housing Real Estate Market House Prices Trend Forecast 2013 to 2016), based on the latest data available at the time concluded in a detailed trend forecast for the US house prices to target a rise of 30% by early 2016 as illustrated by the original graph below, which followed a years warnings to prepare for the birth of new housing bull markets for the UK and US as I repeatedly iterated during 2012 as being the year of the embryonic bull markets that have morphed into bull markets proper for both countries during 2013.

US House Prices Forecast Conclusion - As you read this, the embryonic nominal bull market of 2012 is morphing into a real terms bull market of 2013, with each subsequent year expected to result in an accelerating multi-year trend that will likely see average prices rise by over 30% by early 2016, which translates into a precise house prices forecast based on the most recent Case-Shiller House Price Index (CSXR) of 158.8 (Oct 2012 - released 26th Dec 2012) targeting a rise to 207 by early 2016 (+30.4%).

I am continuing to see positive signs towards a multi-year bull market, so I am giving you another head start on an emerging probable multi-year bull market in UK housing.

An updated graph for the case shiller US house prices index shows that the US house prices are now soaring, clearly this parabolic trajectory is NOT sustainable, so I am expecting the pace of US house prices growth to moderate over the coming months to oscillate around my expected trend trajectory. Still this should act as a warning shot across the bows of all those who are WAITING to buy, as such indecisiveness could prove very costly!

In conclusion, whilst it is still easy today to find much bearish rhetoric in the mainstream media of why the bull run in house prices is unsustainable, however you have to understand that the market is NOT driven by fundamentals but by SENTIMENT and it is SENTIMENT that CREATES the fundamentals! Which is why the academic economists NEVER have any real clue of what is going in the markets because they are ALWAYS LOOKING in the WRONG direction! i.e. they are looking at the CAUSE rather than the EFFECT, as the EFFECT makes itself manifest in the price charts long before the CAUSE appears in the economic data that academics focus upon.

UK Housing Bull Market

I have similar expectations for the UK housing market as that of the US, and likewise UK house prices have also started to soar over the past few months, for which I will do a far more in-depth momentum analysis during the weekend as the UK is the primary housing market that I am most exposed to (60% of assets) - Free Newsletter.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREEDaily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Comments

radthelad
18 Aug 13, 18:11

Housing boom

Nadeem

Ifeel you are right regarding the hosuing inflation being recklessly stoked up by TPTB. One questi I have, taking into account your advice, is how would a person capitalize on this if they are (semi) retired without a salary (effectively blocked from the mortgatge market) who needs cash flow (even if drawing down on savings) in order to live.

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